Farm sector is economy's bright spot

An overall lackluster economy is masking a bright spot: the farm economy.

Despite isolated droughts and floods that have ruined some Midwest crops this spring, times are generally good for U.S. farmers.

And that is creating a financial trickle-down throughout agriculture-related industries. Sales of big farm implements, for example, are strong.

Net income at John Deere & Co. doubled in the first half of this year compared with the same time last year. And that's good news for more than just Deere.

"When farmers buy a $300,000 combine, the people at the factory who build the combine have jobs, the parts supplier has jobs, the truckers who take the stuff up and down the highways have jobs, and I make a living off a farmer," said Greg Schwartz, who sells agricultural implements at the Heritage Tractor dealership in Baldwin City, Kan.

Even the government's report that the corn crop is likely to be smaller this year sent farm machinery company stocks higher based on the upward push that report gave to corn prices — fostering the expectation that more farm equipment will be bought.

Schwartz is careful to note that the high crop prices pumping up farm income are balanced by high expenses.

"Farmers' costs are incredibly high and keep going up," he said. "Record prices on the commodities board means the price of a bag of seed corn goes up, along with the price of fertilizers and chemicals and the fuel the farmer needs to put in that combine in the field."

A bag of seed corn costs more than $200 to plant about four acres, he noted.

But the good news on the sale side is that a bushel of corn is up to about $7.50 from $4 a year ago.

Overall, net farm income is expected to be about 20 percent higher in 2011 than 2010, said Jason Henderson, economist at the Federal Reserve Bank of Kansas City's Omaha, Neb., branch.

"The row crop side — corn, wheat, beans and cotton — will lead most of the gains, but cattle and hog producers are returning to profitability," Henderson said. "That translates into more jobs on the farms and ranches, and it fosters increases in hours worked and wage rates in the food processing companies."

Henderson also noted that farmland values are up. At a time when housing prices have slumped or stagnated, farm acreage is selling at up to 20 percent higher than last year in some markets, with institutional investors as well as farmers buying.

"An indirect effect is that improves farmers' balance sheets, and that makes it easier to get loans," said Tom Jackson, a regional economist with IHS Global Insight. Farming, he noted, is a "very credit-driven industry."

Another big plus for the farm economy is higher export demand, especially from China. In addition to row crops, pork in particular is a rising export.